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Compensation: A New Normal

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Income growth after the Great Recession, at least for most workers, has known only two speeds: slow and slower. Whatever the reasons—uncertain fiscal conditions, weakened hiring or the struggle to find skilled workers—the trend may be here to stay.

The HR profession is no different in this regard. As it is for the rest of the labor force, the path to immediate, substantial growth in compensation for HR professionals is having specialized skills and capitalizing on the heightened need for those skills.

Overall in 2013, HR professionals did not fare too badly. Median total cash compensation for all HR positions rose an average of 3.6 percent in 2013, according to the
2013 General Industry Human Resources Compensation Survey Report-U.S. by Towers Watson. Total cash compensation includes base salary combined with variable compensation, such as bonuses and incentives.

The average increase in HR compensation this year came in slightly ahead of the expected salary growth for all U.S. workers, which several reports have pegged at around 3 percent or less for 2013 and beyond.

"I would be surprised if we saw significant change from this pattern for the next few years," says Laura Sejen, global practice leader for rewards at Towers Watson in New York City. Sejen notes that there will continue to be variations among industries, for top performers and for workers with hard-to-find critical skills. She adds, "We’re at a time when most employers are maintaining costs and putting more emphasis on incentives."

Rewarding HR Executives

As was the case in 2012, top HR executives with labor relations responsibilities earned the highest median compensation in 2013, according to Towers Watson’s report. Total cash compensation for those individuals was $311,800, an increase of 4.2 percent from $299,100 in 2012. Top HR executives without labor relations responsibilities received median total cash compensation of $262,000 in 2013, up 3.1 percent from a year ago.

Compensation increases for most top HR executives ranged between 1 percent and 4 percent. Executives with expertise in legal compliance, workplace safety, talent management and technology experienced the largest spikes in pay in 2013.

Executives with expertise in equal employment opportunity earned median total cash compensation of $156,300 in 2013, up 15.1 percent from a year ago. Median total cash compensation for top HR safety executives was $167,100, an increase of 13.2 percent from 2012. For the top HR information systems executives, median total cash compensation was $175,000 in 2013, up 6.1 percent from a year ago.

Those larger increases in compensation, however, do not necessarily indicate the standard annual increases for those positions overall, Sejen cautions. The figures are drawn strictly from the results of Towers Watson’s HR survey. "For the most part," she says, "there has not been much variation [in compensation growth] by level of organization or specific job family."

Among nonexecutive HR professionals, most median compensation increases in 2013 were also in the low single digits. HR generalists/consultants, for example, earned median total cash compensation of $74,700 in 2013, up 3.8 percent from 2012. Health and safety HR professionals took home median total cash compensation of $73,800, up 8.7 percent from a year ago. Those versed in executive compensation—a hot topic in business circles, given the increased scrutiny of CEO pay—earned median total cash compensation of $110,700 in 2013, up 6.1 percent from 2012.

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Finding Scarce Talent

Many HR professionals consider the competition for talent—and, in some cases, simply finding workers with sufficient skills for job openings—to be a major challenge. In a May 2013 survey by the Society for Human Resource Management, for example, 98 percent of HR professionals said "a shortage of skilled workers" will affect the workforce during the next five years.

Top talent management executives were paid accordingly, earning a median total cash compensation of $234,900 in 2013, an increase of 6.6 percent from a year ago, according to Towers Watson.

The fact that some employers claim they cannot land candidates with certain qualifications during a time of elevated unemployment shows that recruiting and retention skills have become even more in demand, says Nicole Dessain, founder of Nicole Dessain Consulting in Evanston, Ill., which specializes in talent management.

"A lot of companies used to hire third-party headhunters, but many of them are now building their own in-house sourcing team," says Dessain, who has consulted for a wide range of industries including education, financial services, the high-tech sector and professional services. "The talent management function has become so important, especially for ‘re-skilling’ the workforce in an age of constant change," she says.

She believes that HR professionals who can incorporate analytics, or the use of "big data," into their recruiting practices will also have a leg up in the future. "Talent technology" and the related use of social media for recruiting and employee communications will also look good on a resume, Dessain adds.

Adjusting to Low Raises

Even in a time of muted salary increases for most of the U.S. labor force, more employers are placing heavier emphasis on compensation structures and strategies.

Historical data show that as U.S. jobless rates fall during economic recoveries, there is a gradual increase in wages for most workers, because demand for employment becomes stronger. But some recent reports reveal a new trend of improved hiring activity coupled with poor wage growth.

Want to Get Paid More?

So you’re an HR professional and stuck—like many others—in a period of slow income growth. Short of changing careers, what is the best strategy for advancing in the field and earning a bigger payday?

Many experts agree that education, certification and other forms of training are the answer.

“I have long believed that certification is a must for all HR professionals, regardless of economic conditions,” says Ronald Pilenzo, Ph.D., SPHR, a former president and COO of the Society for Human Resource Management. “It is a measure of one’s competency. If I were going to be hiring someone and I had a large pool to select from, I would favor those with the certification.”

Pilenzo, president and CEO of Hobe Sound, Fla.-based The Global HR Consultancy, adds that HR professionals should earn these certifications even before they enter the field. He thinks it’s no different from a professional certification from the American Bar Association, the American Medical Association or the American Institute of Certified Public Accountants.

Some HR professionals may want to study business-related curricula, such as through an MBA program, says Nicole Dessain, owner of Nicole Dessain Consulting in Evanston, Ill.

“Certification can’t hurt, but what’s more advantageous for a bigger salary is a business degree,” she says.

Any kind of training that covers areas beyond an HR generalist’s responsibilities would be beneficial for career advancement and gains in compensation, says Dawn Adams, PHR, president of HResults, a human resource consulting firm based in the Milwaukee area. HR professionals who are well-versed in health care reform will be in demand for the foreseeable future, Adams says, as well as those with expertise in legal compliance.

“Anything that gives you more tools for the toolbox is helpful,” she says.

Above all, HR professionals or those who hope to enter the field should be patient when mapping out a career, says Wendy Russell, a human capital and total rewards consultant with Deloitte in Chicago. Certification, business training and experience on the job are more important than chasing a big payday, she says.

“Some folks will only look at career opportunities with the highest pay,” Russell says. “If you really are trying to build a career, I would recommend stability in lower positions for at least a year or two, particularly during down cycles, as a learning experience. The payoff will be even greater.”

As of October 2013, hiring in the service sector had increased for the previous 15 months on an annual basis, according to the Society for Human Resource Management’s Leading Indicators of National Employment report. Yet, during that same period, service-sector employers increased new-hire compensation in just five of those 15 months.

In the first half of 2013, the U.S. labor force grew by an average of more than 194,000 jobs per month, according to the U.S. Bureau of Labor Statistics. Even so, the median weekly earnings of the nation’s full-time workforce were $776 in the second quarter of 2013—only 0.6 percent higher than in the second quarter of the previous year and not nearly in step with the 1.4 percent inflation that occurred during that same period.

(click on image for a larger version of this chart)

(click on image for a larger version of this chart)

(click on image for a larger version of this chart)

With salary growth nearly at a standstill, many employers are not necessarily providing less compensation for employees, Sejen says, but using incentive and performance-based rewards programs to boost workers’ incomes. These types of compensation are generally viewed as having less of a long-term effect on a company’s bottom line, since they can vary each year and do not represent fixed expenses like annual cost-of-living salary bumps.

"Despite whatever cost management constraints most companies are under, there’s a recognition that baseline [compensation] competitiveness needs to be maintained," Sejen says. Over time, she expects that more companies will take an integrated approach to compensation that includes incentives and performance rewards.

Wendy Russell, SPHR, a human capital and total rewards consultant at Deloitte in Chicago, advises HR professionals to develop compensation and other business operations acumen. "There are too many HR professionals who shy away from work that involves compensation," Russell says. "I often see silos between [HR generalists] and compensation experts at companies I work with, and it’s disappointing. HR professionals should really think in a process or system mindset that takes out emotion and achieves cost-efficiency and productivity. If you can’t speak the language of business, you will be marginalized."

Awarding Incentives

With compensation analysis such an important piece of business operations, it is perhaps not surprising that many executives with that expertise received short-term incentives (STIs) in 2013. STIs often include bonuses tied to performance, and more than four in five (81 percent) top compensation and benefits executives earned STIs in 2013, according to Towers Watson’s data.

Nearly four in five (79 percent) top talent management executives received STIs in 2013. For top HR executives without labor relations responsibilities, 75 percent earned STIs this year, and 72 percent of top HR executives with labor relations responsibilities got STIs in 2013.

As is often the case, fewer lower-level HR professionals than executives earned STIs. Half of HR professionals in organizational development earned STIs in 2013. And reflecting the importance of compensation structures and strategies, more than half (53 percent) of compensation and benefits generalists received STIs this year.

At the Society for Human Resource Management’s Compensation Data Center webpage, www.shrm.org/compensationdata, members can access a tool for creating compensation reports from the Towers Watson survey report. Users can obtain information on salaries, bonuses, and other cash compensation and total compensation for common and uncommon HR positions. The access fee depends on the type of report requested; SHRM members receive special discounted prices.

Additional reports by job family, such as top management and middle management, and by job function, such as sales, marketing and engineering, are available.

The data can be manipulated to generate reports based on position, geographic area, industry, organization size, revenue size and profit status.

Joseph Coombs is a senior analyst with the Workforce Trends program at SHRM.

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.